Lighthouse – An ESG Centred Week

Industry insights: UK climate action UK climate action

As public pressure gathers pace, UK investors are increasingly focusing on sustainability and the government is starting to respond. Recent newsflow related to UK climate action includes:

• At the start of February, Boris Johnson unveiled a policy to ban the sale of new petrol, diesel or hybrid vehicles from 2035 at the latest, brought forward from 2040. This was part of the launch event for the 2020 United Nations Climate Change conference (COP26), which will be hosted by the UK in Glasgow in November.
• BP has vowed to cut its emissions to net zero, also by 2050; however, the company’s announcement on 12 February 2020 did not detail how it expects to meet this target.
• On 17 February, as part of its strategy to diversify away from fossil fuels, Royal Dutch Shell announced an offtake for a 100-megawatt battery at Minety, Wiltshire to provide back-up electricity to the National Grid when supplies of wind and solar power dip and is sufficient to power 10,000 homes. The Chinese investment fund CNIC is financing and constructing the battery with completion expected this year. In February 2019 Shell New Energies bought Limejump, which manages and aggregates electricity from small third-party power assets, including batteries. A full list of Shell New Energies initiatives can be found here.
• Ofgem, the UK government’s regulator for gas and electricity markets, published its ‘decarbonisation action plan’ on 3 February. It contains a radical framework outlining the measures the UK needs to take to meet the government’s net zero carbon emission target in 30 years’ time.
Since 1990, the UK’s net carbon emissions have fallen by 40%, more than in any other advanced economy. Ofgem outlines the radical changes needed to get to zero, including the need for 10m cars to be electrified in the next decade and a fourfold increase in offshore wind generation, as well as electrification and/or hydrogen power networks to replace our domestic gas central heating systems. A radical shift in investment and a concerted effort by the government, industry, investors and consumers will clearly be needed. Energy storage is seen as central to driving the reduction in greenhouse emissions.
Batteries will play a critical role in the decarbonisation of the transport and power industries and investors have numerous options to play this growth in the automotive, chemical/industrial, transport and electricity sectors. Edison published a related thematic report in December Battery charge: The rise of lithium-ion – options and implications. We see scale and process improvements driving down battery manufacturing costs over the next decade, but we expect the bulk of the performance gains to come from improved chemistry. The note also looks at the different ways investors might play the battery theme.
We highlight a couple of stocks under Edison research coverage that are trading at attractive valuations and have sustainability elements: Sureserve Group is a UK small cap while PIERER Mobility is a European mid cap.


Sureserve Group (SUR LN/AIM/£74m) – Well positioned for clean growth strategy
Sureserve Group is engaged in the provision of Compliance and Energy Services through two divisions, focused on customers in the outsourced public and regulated services sectors in the UK. It is the market leader in social housing gas compliance. The group itself is carbon neutral and there is increasing pressure on the UK government to follow a clean growth strategy, first outlined in legislation in 2017. Further development has been distracted by the politics of the last two years, but the UK government now has clean growth firmly on its agenda. Sureserve is well placed to enable the energy savings and efficiency measures to be implemented as part of the strategy.

PIERER Mobility (KTMI/Six Swiss/Vienna/€1.04bn) – Pedal Power Combination.
PIERER Mobility is a leading manufacturer of powered two wheelers (PTWs) focused on premium markets through the KTM, HUSQVARNA and GASGAS motorcycle brands. It looks set to add a new organic growth stream to its established track record as e-mobility markets continue to develop. The acquisition of the outstanding majority of PEXCO e-bikes and the development of new products focused on premium urban e-mobility markets addresses a new segment for the group, alongside continued expansion of the traditional core